Tuesday, August 26, 2008

Energy Conversion Devices (NASDAQ:ENER): Cowen out positive on the name

Cowen is out positive on Energy Conversion Devices (NASDAQ:ENER) saying they expect Q4 EPS to meet or beat our 20c ENER estimate (vs. St. 16c), based on revenue and margin upside, with operating expenses (ex. restructuring) below consensus. Firm sees room for Street estimates to rise, particularly on greater operating leverage. Increased backlog should aid visibility on demand and ASP trends, boosting investor confidence. And, details on the next expansion could help illuminate out-year earnings power. They see 50% upside vs. the market in 12 months and reiterate Outperform.

Higher Backlog Should Boost Investor Confidence. Concerns about ASP erosion compressing margins have been overhanging solar stocks. In mid-June, ENER had already booked 94% of F09 (48% take-or-pay) and 48% of F10, with 600MW of backlog through 2013 (up from 400MW on the Q3 call). F09 ASPs were expected to be flat to just slightly down, and another bump in bookings may allow management to more explicitly frame the F10 outlook.

Details Of Next Expansion, F09 Cost Targets Should Be Triggers. The next factory is likely to be 300MW, probably in a tax-advantaged, Asian location. This would double the run-rate capacity ENER expects to reach when Greenville is fully ramped in Q4:10. While it may be too early for definitive details, an outline would help investors begin to model F11/CY10 earnings. Firm also expects an update on F09 cost/watt reduction.

Notablecalls: I suspect ENER will move on this call. I especially like Cowen's comments regarding the backlog. Could do 2 pts easy or even challenge recent swing highs.